UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended April 2, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-20716
TACO CABANA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2201241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8918 Tesoro Drive, Suite 200
San Antonio, Texas 78217
(Address of principal executive offices)
Telephone Number (210) 804-0990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days:
Yes X No
Indicate the number of shares of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 1, 2000
Common Stock 11,601,375 shares
TACO CABANA, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
April 2, 2000 and January 2, 2000 3
Condensed Consolidated Statements of Income for the
Thirteen Weeks Ended April 2, 2000 and April 4, 4
1999
Condensed Consolidated Statements of Cash Flows for
the Thirteen Weeks Ended April 2, 2000 and April 4, 5
1999
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since the registrant has no reportable
events in relation to the items
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
2
TACO CABANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
January 2, April 2,
2000 2000
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............. $ 1,303,000 $ 618,000
Receivables, net ....................... 507,000 630,000
Inventory .............................. 2,413,000 2,310,000
Prepaid expenses ....................... 3,237,000 3,380,000
Federal income taxes receivable ........ 200,000 -
------------ ------------
Total current assets ................... 7,660,000 6,938,000
PROPERTY AND EQUIPMENT, net ............ 82,616,000 85,664,000
NOTES RECEIVABLE ....................... 278,000 272,000
INTANGIBLE ASSETS, net ................. 10,139,000 9,992,000
OTHER ASSETS ........................... 312,000 206,000
------------ ------------
TOTAL .................................. $101,005,000 $103,072,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................... $ 4,962,000 $ 3,453,000
Accrued liabilities .................... 6,063,000 5,876,000
Current maturities of long-term debt and
capital leases ....................... 5,251,000 4,710,000
Line of credit ......................... 1,000,000 2,535,000
Federal income taxes payable, net ...... - 181,000
------------ ------------
Total current liabilities .............. 17,276,000 16,755,000
LONG-TERM OBLIGATIONS, net of current maturities:
Capital leases ......................... 1,901,000 1,838,000
Long-term debt ......................... 31,756,000 35,743,000
------------ ------------
Total long-term obligations ............ 33,657,000 37,581,000
ACQUISITION AND CLOSED RESTAURANT
LIABILITIES ............................ 6,330,000 5,961,000
DEFERRED LEASE PAYMENTS ................ 744,000 774,000
STOCKHOLDERS' EQUITY:
Common stock ........................... 134,000 135,000
Additional paid-in capital ............. 84,731,000 84,901,000
Retained deficit ....................... (30,427,000) (28,057,000)
Treasury stock, at cost (1,354,600 shares
at January 2, 2000 and 1,865,000 shares
at April 2, 2000) .................... (11,440,000) (14,978,000)
------------ ------------
Total stockholders' equity............ 42,998,000 42,001,000
------------ ------------
TOTAL .................................. $101,005,000 $103,072,000
============ ============
See Notes to Condensed Consolidated Financial Statements.
3
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
April 4, April 2,
1999 2000
----------- -----------
REVENUES:
Restaurant sales ......................... $36,836,000 $40,033,000
Franchise fees and other income .......... 74,000 84,000
----------- -----------
Total revenues.......................... 36,910,000 40,117,000
----------- -----------
COSTS AND EXPENSES:
Restaurant cost of sales ................. 10,927,000 11,691,000
Labor .................................... 10,127,000 11,044,000
Occupancy ................................ 2,010,000 2,146,000
Other restaurant operating costs ......... 6,251,000 6,769,000
General and administrative ............... 2,050,000 2,366,000
Depreciation and amortization ........... 2,057,000 2,218,000
Restaurant opening costs ................. 172,000 180,000
----------- -----------
Total costs and expenses................ 33,594,000 36,414,000
----------- -----------
INCOME FROM OPERATIONS ................... 3,316,000 3,703,000
----------- -----------
INTEREST EXPENSE, NET .................... (552,000) (813,000)
----------- -----------
INCOME BEFORE INCOME TAXES ............... 2,764,000 2,890,000
INCOME TAX EXPENSE ....................... - 520,000
----------- -----------
NET INCOME ............................... $ 2,764,000 $ 2,370,000
=========== ===========
BASIC EARNINGS PER SHARE.................. $ 0.21 $ 0.20
=========== ===========
BASIC WEIGHTED SHARES OUTSTANDING......... 13,350,840 11,753,606
=========== ===========
DILUTED EARNINGS PER SHARE................ $ 0.20 $ 0.20
=========== ===========
DILUTED WEIGHTED SHARES OUTSTANDING....... 13,714,176 11,932,120
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
April 4, April 2,
1999 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................... $2,764,000 $2,370,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization......... 2,057,000 2,218,000
Changes in operating working capital
items ............................... (755,000) (1,704,000)
---------- ----------
Net cash provided by operating activities 4,066,000 2,884,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....... (5,984,000) (5,120,000)
Proceeds from sales of property
and equipment .......................... 459,000 -
---------- ----------
Net cash used for investing activities ... (5,525,000) (5,120,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 8,404,000 5,000,000
(Payments) proceeds on revolving line of
credit ................................. (2,010,000) 1,535,000
Principal payments under long-term debt .. (4,901,000) (1,560,000)
Principal payments under capital leases .. (52,000) (57,000)
Purchase of treasury stock ............... - (3,538,000)
Exercise of stock options................. 196,000 171,000
---------- ----------
Net cash provided by financing activities 1,637,000 1,551,000
---------- ----------
NET INCREASE (DECREASE) IN CASH .......... 178,000 (685,000)
CASH AND CASH EQUIVALENTS, beginning of
period .................................. 719,000 1,303,000
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 897,000 $ 618,000
========== ==========
See Notes to Condensed Consolidated Financial Statements.
5
TACO CABANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Principles of Consolidation - The consolidated financial statements include
all accounts of Taco Cabana, Inc. and its wholly-owned subsidiaries (the
Company). All significant intercompany balances and transactions have been
eliminated.
The unaudited Condensed Consolidated Financial Statements include all
adjustments, consisting of normal, recurring adjustments and accruals, which
the Company considers necessary for fair presentation of financial position
and the results of operations for the periods presented. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted. The interim financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
January 2, 2000.
2. Stockholders' Equity
The Company's Board of Directors previously approved plans to repurchase up
to a total of 4,500,000 shares of the Company's Common Stock. Through the
first quarter of 1999, the Company had repurchased 2,585,000 shares with an
aggregate cost of $13.9 million. During the first quarter of 1999, the
Company retired all shares held as treasury shares. The cost of retired
shares in excess of par value has been charged to additional paid in
capital. Subsequent to the first quarter of 1999, the Company repurchased
an additional 1,865,000 shares at an aggregate cost of $15.0 million, which
as of April 2, 2000 were held as treasury stock.
3. Earnings per Share
Basic earnings per share was computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the reporting period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Outstanding stock
options issued by the Company represent the only dilutive effect reflected
in diluted weighted average shares.
6
The following table sets forth the computation of basic and diluted earnings
per share:
Thirteen Weeks Ended
-----------------------------
April 4, 1999 April 2, 2000
------------- -------------
(Unaudited) (Unaudited)
Numerator for basic and diluted earnings per
share - net income $2,764,000 $2,370,000
Denominator:
Denominator for basic earnings per share -
weighted-average shares 13,350,840 11,753,606
Effect of dilutive securities -
employee stock options 363,336 178,514
---------- ----------
Denominator for diluted earnings per share -
adjusted weighted-average and assumed
conversions 13,714,176 11,932,120
========== ==========
Basic earnings per share $ 0.21 $ 0.20
========== ==========
Diluted earnings per share $ 0.20 $ 0.20
========== ==========
4. Supplemental Disclosure of Cash Flow Information
Thirteen Weeks Ended
--------------------
April 4, April 2,
1999 2000
----------- -----------
(Unaudited) (Unaudited)
Cash paid for interest ............. $ 562,000 $607,000
Interest capitalized on construction
costs ............................ 62,000 59,000
Cash paid for income taxes ......... - 43,000
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company commenced operations in 1978 with the opening of the first Taco
Cabana restaurant in San Antonio, Texas. As of May 1, 2000, the Company had
111 Company-owned restaurants and 10 franchised restaurants. The Company's
revenues are derived primarily from sales by Company-owned restaurants, with
franchise fees and other income currently contributing less than 1% of total
revenues.
The Company opened one Company-owned restaurant during the first quarter of
2000 for a total of 110 company-owned and 10 franchised restaurants.
Subsequent to April 2, 2000, one Company-owned restaurant was opened for a
current systemwide total of 121 restaurants.
8
The following table sets forth for the periods indicated the percentage
relationship to total revenues, unless otherwise indicated, of certain income
statement data. The table also sets forth certain restaurant data for the
periods indicated.
Thirteen Weeks Ended
--------------------------
April 4, April 2,
1999 2000
-------- --------
Income Statement Data:
REVENUES:
Restaurant sales 99.8% 99.8%
Franchise fees and other income 0.2 0.2
----- -----
Total revenues 100.0% 100.0%
===== =====
COSTS AND EXPENSES:
Restaurant cost of sales (1) 29.7% 29.2%
Labor (1) 27.5 27.6
Occupancy (1) 5.5 5.4
Other restaurant operating costs (1) 17.0 16.9
General and administrative costs 5.6 5.9
Depreciation and amortization 5.6 5.5
Restaurant opening costs 0.5 0.4
----- -----
INCOME FROM OPERATIONS 9.0 9.2
INTEREST EXPENSE (1.5) (2.0)
----- -----
INCOME BEFORE INCOME TAXES 7.5 7.2
INCOME TAX EXPENSE - 1.3
----- -----
NET INCOME 7.5% 5.9%
===== =====
Restaurant Data:
COMPANY OWNED RESTAURANTS:
Beginning of period 102 109
Opened 2 1
Closed (1) -
----- -----
End of period 103 110
FRANCHISED RESTAURANTS: 10 10
TOTAL RESTAURANTS: 113 120
===== =====
(1) Percentage is calculated based upon restaurant sales.
9
The Thirteen Weeks Ended April 2, 2000 Compared to the Thirteen Weeks Ended
April 4, 1999
Restaurant Sales. Restaurant sales increased by $3.2 million, or 8.7%, to
$40.0 million for the first quarter of 2000 from $36.8 million for the first
quarter in 1999. The increase is due to an increase in sales at existing
restaurants and the opening of new restaurants. Comparable store sales,
defined as Taco Cabana restaurants that have been open 18 months or more at
the beginning of the quarter, increased 2.3%. Management attributes the
increase in comparable store sales to several factors including a more
consistent marketing program, a commitment to increased staffing levels at
existing restaurants, the ongoing reimage program and a price increase taken
in the fourth quarter of 1999. Sales from restaurants opened after April 4,
1999 accounted for an increase of $2.6 million. This increase was partially
offset by sales from restaurants which were closed after April 4, 1999 of
$291,000.
Restaurant Cost of Sales. Restaurant cost of sales, calculated as a
percentage of restaurant sales, decreased to 29.2% in the first quarter of
2000 from 29.7% for the first quarter of 1999. The decrease was due primarily
to a price increase implemented in the last quarter of 1999 and continued
improvements in the management of food costs through operational controls and
strong purchasing programs. Management expects this amount, as a percentage
of sales, to continue to show improvement on a year over year basis during
2000.
Labor. Labor costs increased by $917,000 during the first quarter of 2000
compared to the first quarter of 1999. As a percentage of restaurant sales,
labor costs increased to 27.6% in the first quarter of 2000 from 27.5% in the
first quarter of 1999. The increase in labor costs, as a percentage of
restaurant sales, is due to management's continued commitment to increased
staffing levels at the restaurant level in order to provide a consistent guest
experience as well as higher than normal labor costs at newer restaurants.
New restaurants generally have higher than normal labor costs for the first
four to six months of operations. Management expects labor costs as a
percentage of sales to increase on a year over year basis during 2000 as the
Company moves into new markets and continues to invest in the guest
experience.
Occupancy. Occupancy costs increased by $136,000 during the first quarter of
2000 compared to the first quarter of 1999 due to the opening of new
restaurants. As a percentage of restaurant sales, occupancy costs decreased
to 5.4% in the first quarter of 2000 compared to 5.5% in the first quarter of
1999. The decrease as a percentage of sales is due to an increase in average
unit sales volumes during the first quarter of 2000, which is attributable to
increased sales at existing restaurants. Management expects the dollar amount
to increase due to new restaurant openings but continue to show improvement as
a percentage of sales during 2000.
Other Restaurant Operating Costs. Other restaurant operating costs increased
to $6.8 million in the first quarter of 2000 compared to $6.3 million in the
first quarter of 1999. As a percentage of restaurant sales, other restaurant
operating costs decreased to 16.9% for the first quarter of 2000 compared to
17.0% for the first quarter of 1999. The decrease is due to the leverage from
higher average sales as the dollar amount of other operating costs per store
open remained relatively flat. Management expects this amount, as a
percentage of sales, to be slightly lower or remain constant on a year over
year basis during 2000.
10
General and Administrative. General and administrative expenses increased to
$2.4 million for the first quarter of 2000 from $2.1 million in the comparable
period of 1999. As a percentage of sales, general and administrative expenses
increased to 5.9% for the first quarter of 2000 compared to 5.6% for the
comparable period in 1999. The increase is primarily due to an increased
level of expenditures to support the Company's entry into new markets.
Management expects this amount, as a percentage of sales, to decrease during
2000.
Depreciation and Amortization. Depreciation and amortization consisted of the
following:
Thirteen Weeks Ended
------------------------------
April 4, 1999 April 2, 2000
------------- -------------
(Unaudited) (Unaudited)
Depreciation of property and equipment $ 1,911,000 $ 2,072,000
Amortization of intangible assets 146,000 146,000
Depreciation expense increased by approximately $161,000 for the quarter ended
April 2, 2000 compared to the quarter ended April 4, 1999. The increase was
primarily due to the addition of new restaurants since April 4, 1999, which
accounted for an increase of $177,000, offset by a net reduction of
depreciation on existing assets.
Restaurant Opening Costs. Restaurant opening costs remained constant in the
first quarter of 2000 compared to the first quarter of 1999. The Company
opened one restaurant during the thirteen weeks ended April 2, 2000 compared
to two restaurant openings in the thirteen weeks ended April 4, 1999. The
increase in restaurant opening costs is primarily due to expenditures made in
preparation of restaurant openings in new markets. Management expects
restaurant opening costs to increase during the remainder of 2000 compared to
1999.
Interest Expense, net. Interest expense, net of interest capitalized on
construction costs, increased to $813,000 in the first quarter of 2000 from
$552,000 in the first quarter of 1999, primarily as a result of additional
borrowings under the Company's debt facilities. In addition, the Company
capitalized $59,000 of interest related to new restaurant construction in the
most recent quarter compared to $62,000 during the first quarter of 1999.
Income Taxes. Income tax expense was $520,000 for the first quarter of 2000
compared to zero in the first quarter of 1999. The increase in income taxes
is due to management's anticipation of paying alternative minimum taxes during
2000. During 2000, management anticipates the completion of an audit by the
Internal Revenue Service of the 1994 through 1996 tax years with a possible
refund of $2.0 million. No benefit or provision has been recorded in the
financial statements for the anticipated resolution of this examination.
11
Net Income and Earnings Per Share. Net income decreased to $2,370,000 for the
first quarter of 2000 from $2,764,000 for the same period in 1999. Net income
was 5.9% of total revenues for the first quarter in 2000 compared to 7.5% in
the first quarter of 1999. The decrease in net income during the first quarter
of 2000 is due primarily to the recognition of income tax expense and an
increase in interest expense, offset by higher sales. Diluted earnings per
share was $0.20 for both the first quarter of 2000 and the first quarter of
1999. Diluted earnings per share was impacted by a lower number of shares
outstanding in the thirteen weeks ended April 2, 2000 compared to the thirteen
weeks ended April 4, 1999.
Liquidity and Capital Resources
Historically, the Company has financed business and expansion activities by
using funds generated from operating activities, build-to-suit leases, equity
financing, short and long-term debt and capital leases. The Company maintains
credit facilities totaling $50.0 million, including a $5.0 million unsecured
revolving line of credit. As of May 1, 2000, the aggregate outstanding balance
under these commitments was $ 41.7 million.
Net cash provided by operating activities was $2.9 million for the thirteen
weeks ended April 2, 2000, and $4.1 million for the thirteen weeks ended April
4, 1999. Management attributes much of the decrease to a reduction of
accounts payable and accrued liabilities during the first quarter of 2000.
Net cash used in investing activities was $5.1 million for the thirteen weeks
ended April 2, 2000, representing capital expenditures for the construction of
new restaurants and improvements to existing restaurants. This compares to
$5.5 million in net cash used in investing activities for the thirteen weeks
ended April 4, 1999, representing primarily capital expenditures for the
construction of new restaurants and improvements to existing restaurants,
offset by the sale of assets generating $459,000 in proceeds.
Net cash provided by financing activities was $1.6 million for the thirteen
weeks ended April 2, 2000, representing primarily net borrowings under the
Company's debt facilities, offset by the purchase of $3.5 million in treasury
stock. This compares to $1.6 million in net cash provided by financing
activities for the thirteen weeks ended April 4, 1999, representing primarily
net borrowings under the Company's debt facilities.
The special charges recorded in prior years included accruals of approximately
$10.2 million to record the estimated monthly lease payments, net of expected
sublease receipts, associated with certain restaurants which have been closed.
Cash requirements for these accruals were approximately $208,000 during the
first quarter of 2000. The Company currently has two closed restaurant
properties for sale which were covered by the special charges. Although there
can be no assurance of the particular price at which such properties will be
sold, the Company expects to receive funds equal to or in excess of the
carrying value upon the actual disposition of these properties. In addition,
certain acquisition liabilities related to a prior acquisition were reduced by
payments of approximately $241,000 during the first quarter of 2000.
12
The Company regularly evaluates the operations of its under-performing
restaurants. As part of the evaluation, the Company considers alternative uses
for these properties. The alternative uses could include the sale, sub-lease
or lease buy-out of these properties. The Company is currently evaluating two
leased properties. At this time, no definitive agreements have been reached
and the amount, timing and financial statement impact of any potential
transaction cannot be determined.
The Company believes that existing cash balances, funds generated from
operations, its ability to borrow, and the possible use of lease financing
will be sufficient to meet the Company's capital requirements through 2000,
including the planned opening of fourteen restaurants and the reimaging of
fourteen restaurants. Total capital expenditures related to new restaurants
are estimated to be $15.0 to $17.0 million. The total for other capital
expenditures, including the cost of the reimagings, is estimated to be $5.0 to
$6.0 million. Total capital expenditures for 2000 are expected to approximate
$20.0 to $23.0 million.
Impact of Inflation
Although increases in labor, food or other operating costs could adversely
affect the Company's operations, management does not believe that inflation
has had a material adverse effect on the Company's operations to date.
Seasonality and Quarterly Results
The Company's sales fluctuate seasonally. Historically, the Company's highest
sales and earnings occur in the second and third quarters. In addition,
quarterly results are affected by the timing of the opening and closing of
stores. Therefore, quarterly results cannot be used to indicate the results
for the entire year.
13
Forward-Looking Statements
Statements in this quarterly report concerning Taco Cabana which are (a)
projections of revenues, costs, including trends in cost of sales, operating
costs, labor, depreciation and amortization, restaurant opening costs, general
and administrative costs and interest or other financial items, (b) statements
of plans and objectives for future operations, specifically statements
regarding planned restaurant openings, closings and reimages as well as
projected property sales, lease buy-outs, sub-leases, share repurchases and
cash flows, (c) statements of future economic performance, (d) statements of
projected tax rates, refunds or the utilization of net operating loss tax
carryforwards, or (e) statements of assumptions or estimates underlying or
supporting the foregoing are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Act of 1934. The ultimate accuracy of forward-looking statements is subject
to a wide range of risks, uncertainties and other factors which may cause
actual results and outcomes to differ, often materially, from expectations.
Any number of important factors could cause actual results to differ
materially from those in the forward-looking statements herein, including the
following: the timing and extent of changes in prices of commodities and
supplies that the Company utilizes; cost and availability of labor; actions of
our customers and competitors; changes in state and federal environmental,
economic, safety and other policies and regulations and any legal or
regulatory delays, including resolution of income tax matters, or other
factors beyond the Company's control; execution of planned capital projects;
weather conditions affecting the Company's operations; natural disasters
affecting operations; and adverse rulings, judgments, or settlements in
litigations or other legal matters. The Company disclaims any intention or
obligation to update or revise any such forward-looking statements, whether as
a result of new information, future events or otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company has filed the following exhibits with this report:
27. Financial Data Schedules
No reports on Form 8-K were filed during the period covered by this report.
14
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2000 Taco Cabana, Inc.
/s/David G. Lloyd
--------------------------------------
David G. Lloyd
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
Signing on behalf of the registrant and as
the principal financial and accounting
officer
15
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> APR-2-2000
<CASH> 618,000
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<RECEIVABLES> 1,004,000
<ALLOWANCES> 102,000
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<COMMON> 135,000
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<SALES> 40,033,000
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<CGS> 11,691,000
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